Case Law Summaries

Lee v. Rah

ATTORNEYS; JURISDICTION — Even if an attorney’s activities take place entirely outside of New Jersey, if the attorney’s legal efforts are directed toward transferring a New Jersey property in an attempted sale to third parties, New Jersey will exercise personal and subject matter jurisdiction over the attorney and the activities if it is reasonable to conclude that the out-of-state attorney was well aware that his or her legal activities would have direct consequences in New Jersey.

Two investors, one a resident of Korea who maintained a business office in New York City, and the other a resident of New Jersey, claimed to have been the victims of a massive fraudulent scheme. The New Jersey resident owned a corporation housed in the same New York City office as his co-investor. One of the investors filed a RICO action against the scammer.

One of the investors had hired an attorney to prepare a durable power of attorney to authorize the other investor to act on his behalf in connection with certain bond, share, and commodity transactions. Later, the two investors engaged the same attorney to draft a deed transferring ownership of residential property from the scammer’s parents to one of the investors. The consideration was stated to be ten dollars. The deed was to be held in escrow until the grantee gave notice of recording or release.

Then, one of the investors approached the same attorney with one of the scammer’s parents. He requested that the attorney draft an undertaking agreement among the attorney, the scammer’s parents, and the investor. It was to recite the parents’ desire to sell their property and their consent to a sales listing agreement through a real estate agent, the wife of one of the investors. The agreement provided for the execution of a contract for the sale of the property and the forwarding of the net proceeds of sale to the attorney, as escrow agent, to be held in trust for the investors.

The undertaking agreement was signed by one investor on behalf of the other using the power of attorney, although the attorney later testified that he never was shown the document and it had never been produced. The scammer’s mother executed the document for herself and on behalf of her husband. However, when the attorney saw that the mother lacked the power to act for her husband, he drafted a power of attorney, which she returned by fax later that day in executed form. The parents were not represented by counsel at any stage of the proceedings. The attorney claimed to have had no further contact with any of the parties. He also claimed that the deed was continuously held in escrow in New York and that it never was recorded in New Jersey.

At some point, the parents defaulted on their mortgage and, at the request of one of the investors, they vacated their residence. It appeared that the mortgage default was cured by one of the investors, who also expended substantial sums improving the property. A sales contract for the house was then executed, with a closing date to be scheduled. The real estate contract left blank the identity of the seller. Thereafter, a copy of the deed was tendered as proof of ownership of the property. However, the purchaser’s title company refused to accept the document, determining it to be irregular, having been drafted on a New York form. Instead, the company demanded that the parents execute a new deed and affidavit of title to convey the property to the new buyer. The parents refused, claiming defects in the undertaking agreement as the result of the mother’s unauthorized execution of the document on her husband’s behalf and a lack of consideration. Additionally, they claimed that the undertaking agreement had been executed under duress from threats by one investor. One threat was to desecrate the scammer’s family’s graves in Korea. Upon learning of the difficulty, the purchasers made time of the essence, requiring that a closing take place promptly, or the deal would be forfeited.

At this point, New Jersey counsel for one investor moved in the RICO action for an order to compel the parents to execute the new deed and affidavit of title. At the conclusion of a hearing, the court denied the relief sought, finding that the investor had failed to demonstrate irreparable harm and the likelihood of success on the merits. The court also found that although the investor was seeking specific performance, in actuality his suit was for damages. Further, it found the undertaking agreement to be unenforceable, holding it lacked consideration, that there was no evidence that the signatures of the investor and parent were authorized, that the mother lacked an understanding of what she signed, that a conflict of interest resulted from the attorney’s alleged attempts to counsel her, and that he should have advised her to retain an attorney to review the document at issue. However, the lower court ordered the parents to reimburse the investor for what he spent on the property and entered an attachment order to prevent alienation of the house until the suit was concluded. The court’s order was affirmed by the Appellate Division, which found that the investor had failed to make a showing of irreparable harm.

Almost six years after the hearing before the lower court, the investors filed a legal malpractice action against the New York attorney in New Jersey. Before filing an answer, the attorney moved to dismiss the complaint, but his motion was denied. Thereafter, he brought a second motion claiming lack of personal jurisdiction. His motion was granted in a written opinion.

On appeal, the Appellate Division found no evidence that the attorney had any contacts in New Jersey other than his retention by a New Jersey resident and his drafting of documents concerning the disposition of New Jersey property. The attorney was not licensed to practice in New Jersey, he did not solicit business there, and he had no known presence in the state. Evidence suggested that fees for his services were paid by a New York corporation. Further, there was no evidence of correspondence or communications by the attorney directed to either investor in New Jersey. Nonetheless, the Court found that because of the foreseeable effects of the attorney’s conduct upon New Jersey, interests personal jurisdiction of the New Jersey courts over him could be sustained. Thus, the Court reversed the lower court’s order that had dismissed the action.

The Court found that the focus of the attorney’s legal efforts was to transfer New Jersey property in an attempted sale to third parties. Although the attorney’s activities in that regard occurred only in New York, nonetheless he met there, not only with a New Jersey resident buyer, but also with two New Jersey resident sellers to whom he offered legal advice in connection with the undertaking agreement and his legal services consisted of drafting a power of attorney. As a result, it was reasonable to conclude that the New York attorney was well aware that his legal activities would have direct consequences in New Jersey such that he should have been aware of the possibility of litigation arising in that forum.

The Court was also satisfied that the exercise of jurisdiction in New Jersey comported with fair play and substantial justice. In that regard, the Court found that New Jersey maintained a significant interest in protecting its residents against potential malpractice, defending the suit in New Jersey rather than New York would impose an insignificant additional burden on the attorney, and nothing has been presented that would suggest that maintaining suit in New Jersey would be unreasonable.